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Inheritance Tax Planning

Over the years we strive to gather up wealth for our future. Some of us call this our nest egg for the future, others see it as having an emergency fund for a rainy day and others are driven by the idea of building up wealth to pass on to the family.

It is often said that the only two things we can be sure of in life is tax and death. Certainly the latter is true but whilst the former is also true, the amount of tax that has to be paid both during life and on death, can be affected by the actions we take at various stages.

With regard to tax which arises on death, the main tax that applies is Inheritance Tax. At present where an estate exceeds an allowable threshold, a tax arises on the excess figure at 40%. There are a few exemptions so that any property passing between spouses or civil partners (formalised under a Civil Partnership) or any assets passing to a charity or assets qualifying under Agricultural or Business Property Relief will pass tax free. Anything passing, however, to a next generation in the form of children or grandchildren will be assessed to tax. It follows therefore that if the size of one’s wealth at the time of death can be kept to a minimum, the resulting tax will also be reduced. There are numerous ways in which lifetime wealth can be reduced and many of these will not affect the individual’s financial position. By this we mean that if an analysis of the individual’s situation shows that there is excess capital or income then lifetime gifting can be considered. Alternatively, trusts can be established for beneficiaries through lifetime gifting. Additionally, insurance companies offer products which produce income whilst investing capital in tax efficient ways. It is certainly the case that depending on one’s circumstances and objectives, it is extremely likely that an arrangement could be put in place which would substantially improve the inheritance tax position but not to the detriment of the arranger.

There are also inheritance tax consequences of lifetime gifting. Following the changes to the Budget on 22nd March 2006 it is important to be aware of the new rules as lifetime inheritance tax can much more easily arise now than prior to the Budget. Once again, however, with proper and informed decisions lifetime inheritance tax can be avoided or kept to an absolute minimum.

It is really only possible to give the broadest outline in this page. The advice which will be relevant to anyone will depend entirely on their personal situation and their objective in pursuing advice and the only way therefore to obtain this proper advice is to contact us.

For advice on all aspects of private client work contact Kieran Fitzpatrick or Donald Skinner-Reid.

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